Pay distribution preferences and productivity effects: An experiment

Inequality has received substantial attention across academic research and popular press. This study investigates individuals’ preferences over distributions of performance-based pay, and examines the productivity effects associated with these different pay distributions using a real-effort work task. Importantly, the pay distributions vary in the degree of inequality, average pay, and implied level of final income inequality. Overall, we find identifiable patterns in pay preferences regarding how individuals trade-off equity versus efficiency within the group. We find strong evidence that equality of opportunity – in the form of equal piece-rate pay – is preferred by many individuals at the expense of some overall loss in collective efficiency. The distribution of pay rates has little impact on the quantity of output produced; however, we do observe an impact on output quality. Moreover, for individuals who have expressed a preference for equality of opportunity, working under equal piece-rates can incentivize provision of higher quality output.